Rithm Property Trust Inc

Previous wording

In 2014, we formed Great Ajax Funding LLC, a wholly owned subsidiary of the Operating Partnership, to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts we may form for additional secured borrowings. AJX Mortgage Trust I and AJX Mortgage Trust II are wholly owned subsidiaries of the Operating Partnership formed to hold mortgage loans used as collateral for financings under our repurchase agreements. On February 1, 2015, we formed GAJX Real Estate Corp., as a wholly owned subsidiary of the Operating Partnership, to own, maintain, improve and sell certain REOs purchased by us. We have elected to treat GAJX Real Estate Corp. as a TRS under the Code.

Current wording

The Company conducts substantially all of its business through our Operating Partnership and its subsidiaries. The Company, through a wholly-owned subsidiary, Great Ajax Operating LLC, is the sole general partner of the Operating Partnership. GA-TRS is a wholly-owned subsidiary of the Operating Partnership that owns an equity interest in the Former Manager and previously owned an equity interest in the Former Servicer. GAJX is a wholly-owned subsidiary of the Operating Partnership formed to own, maintain, improve and sell REO properties acquired by the Company. The Company elected to treat GA-TRS and GAJX as TRSs under the Internal Revenue Code. Great Ajax Funding LLC is a wholly-owned subsidiary of the Operating Partnership formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings. AJX Mortgage Trust I and AJX Mortgage Trust II are wholly-owned subsidiaries of the Operating Partnership formed to hold mortgage loans used as collateral for financings under the Company’s repurchase agreements. In addition, the Company, through its Operating Partnership, holds REO properties acquired upon the foreclosure or other settlement of its owned NPLs.

Previous wording

Our Operating Partnership, through interests in certain entities as of December 31, 2023, owns 99.9% of Great Ajax II REIT Inc. which owns Great Ajax II Depositor LLC which then acts as the depositor of mortgage loans into securitization trusts and holds subordinated securities issued by such trusts. Similarly, as of December 31, 2023, the Operating Partnership wholly owned Great Ajax III Depositor LLC, which was formed to act as the depositor into 2021-E, which is a REMIC. We have securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be VIEs, and we have determined that we are the primary beneficiary of the VIEs.

Current wording

Our Operating Partnership, through interests in certain entities as of December 31, 2024, owns 99.9% of Great Ajax II REIT Inc., which owns Great Ajax II Depositor LLC, which then acts as the depositor of mortgage loans into securitization trusts and holds subordinated securities issued by such trusts. Similarly, as of December 31, 2024, the Operating Partnership wholly-owned Great Ajax III Depositor LLC, which was formed to act as the depositor for a single joint venture with our partners. We have securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be variable interest entities (“VIEs”), and we have determined that we are the primary beneficiary of the VIEs.

Previous wording

We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. Our qualification as a REIT depends upon our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification as a REIT under the Code, and that our current intended manner of operation enables us to meet the requirements for taxation as a REIT for U.S. federal income tax purposes.

Current wording

We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. Our qualification as a REIT depends upon our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification as a REIT under the. Internal Revenue Code, and that our current intended manner of operation enables us to meet the requirements for taxation as a REIT for U.S. federal income tax purposes.

Previous wording

The following table outlines the carrying value of our portfolio of mortgage loan assets and single-family and smaller commercial properties as of December 31, 2023 and 2022 ($ in millions):

Current wording

The following table outlines the carrying value of our portfolio of mortgage loan assets, investments in securities and REO as of December 31, 2024 and 2023 ($ in millions):

Previous wording

We closely monitor the status of our mortgage loans and, through our Servicer, work with our borrowers to improve their payment records.

Current wording

We closely monitor the status of our mortgage loans held-for-investment and held-for-sale, as well as the mortgage loans underlying our RMBS and, through our Servicer, work with our borrowers to improve their payment records.

Previous wording

Acquisitions. Our operating results depend heavily on sourcing residential RPLs and SBC loans and, when attractive opportunities are identified, NPLs at attractive prices. We expect that our residential mortgage loan portfolio may grow at an uneven pace, as opportunities to acquire distressed residential mortgage loans may be irregularly timed and may involve large portfolios of loans, and the timing and extent of our success in acquiring such loans cannot be predicted. In addition, for any given portfolio of loans that we agree to acquire, we typically acquire fewer loans than originally expected, as certain loans may be resolved prior to the closing date or may fail to meet our diligence standards. The number of loans not acquired typically constitutes a small portion of a particular portfolio. In any case where we do not acquire the full portfolio, we make appropriate adjustments to the applicable purchase price. Acquisitions of RPLs have generally been lower recently primarily due to reduced supply and unfavorable market conditions. In light of current market conditions and certain financial challenges, including the significant losses we have incurred to date and limited sources of financing, we do not expect to be in a position to make a significant number of new acquisitions in the near future.

Current wording

Acquisitions— In light certain financial challenges, including the significant losses we have incurred to date and limited sources of financing, we do not expect to be able to acquire significant new commercial mortgage assets in the near future.

Previous wording

Financing. Our ability to grow our business by acquiring residential RPLs and SBC loans depends on the availability of adequate financing, including additional equity financing, debt financing or both in order to meet our objectives. We intend to leverage our investments with debt, the level of which may vary based upon the particular characteristics of our portfolio and on market conditions. We have funded and intend to continue to fund our asset acquisitions with non-recourse secured borrowings in which the underlying collateral is not marked to market and employ repurchase agreements without the obligation to mark to market the underlying collateral to the extent available. We securitize our whole loan portfolios, primarily as a financing tool, when economically efficient to create long-term, fixed rate, non-recourse financing with moderate leverage, while retaining one or more tranches of the subordinate MBS so created. The secured borrowings are structured as debt financings and not REMIC sales. We completed the securitization transactions pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), in which we issued notes primarily secured by seasoned, performing and non-performing mortgage loans primarily secured by first liens on one-to-four family residential properties. Currently there is substantial uncertainty in the securitization markets which could limit our access to financing.

Current wording

Financing— We previously securitized our whole loan portfolios, primarily as a financing tool, when economically efficient to create long-term, fixed rate, non-recourse financing with moderate leverage, while retaining one or more tranches of the subordinate MBS so created. The secured borrowings are structured as debt financings and not sales through a real estate mortgage investment conduit (“REMIC”). We completed the securitization transactions pursuant to Rule 144A under the Securities Act, in which we issued notes primarily secured by seasoned, performing and non-performing mortgage loans primarily secured by first liens on one-to-four family residential properties. Currently there is substantial uncertainty in the securitization markets which has limited our access to financing.

Previous wording

To qualify as a REIT under the Code, we generally will need to distribute at least 90% of our taxable income each year (subject to certain adjustments) to our stockholders. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital to support our activities.

Current wording

Distributions— To qualify as a REIT under the Internal Revenue Code, we generally need to distribute at least 90% of our taxable income each year (subject to certain adjustments) to our stockholders. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital to support our activities.

Previous wording

Expenses. Our expenses primarily consist of the fees and expenses payable by us under the Management Agreement and the Servicing Agreement. Additionally, our Manager incurs direct, out-of-pocket costs related to managing our business, which are contractually reimbursable by us. Loan transaction expense is the cost of performing due diligence on pools of mortgage loans under consideration for purchase. Professional fees are primarily for legal, accounting and tax services. Real estate operating expense consists of the ownership and operating costs of our REO properties, and includes any charges for impairments to the carrying value of these assets, which may be significant. Those expenses may increase due to extended eviction timelines caused by the pandemic. Interest expense, which is subtracted from our Interest income to arrive at Net interest income, consists of the costs to borrow money.

Current wording

Expenses— Our expenses primarily consist of the fees and expenses payable by us under the Management Agreement and the Servicing Agreements. Additionally, our Former Manager incurred and our New Manager incurs direct, out-of-pocket costs and expenses related to managing our business, which are contractually reimbursable by us. Additionally, pursuant to the Management Agreement, we also pay all of the New Manager’s costs and expenses and reimburse the New Manager (to the extent incurred by the New Manager) on a monthly basis for the costs and expenses of providing services under the Management Agreement, including reimbursing the New Manager or its affiliates, as applicable, for our allocable share of the compensation (whether paid in cash, stock or other forms), including annual base salary, bonus, any related withholding taxes and employee benefits, paid to (i) the New Manager’s personnel serving as our chief financial officer based on the percentage of his or her time spent managing the Company’s affairs and (ii) other corporate finance, tax, accounting, middle office, internal audit, legal, risk management, operations, compliance and other non-investment personnel of the New Manager and its affiliates who spend all or a portion of their time managing our affairs. Loan transaction expense is the cost of performing due diligence on pools of mortgage loans. Professional fees are primarily for legal, accounting and tax services. Real estate operating expense consists of the ownership and operating costs of our REO properties, and includes any charges for impairments to the carrying value of these assets, which may be significant. Interest expense, which is subtracted from our Interest income to arrive at Net interest income, consists of the costs to borrow money.

Previous wording

Changes in Market Interest Rates. With respect to our business operations, increases in existing interest rates, in general, may over time cause: (1) the value of our mortgage loan and MBS portfolio to further decline; (2) coupons on our ARM and hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to higher interest rates; (3) impact adversely our ability to securitize, re-securitize or sell our assets on attractive terms; (4) reduce the ability or desire of borrowers to refinance their loans; (5) mortgage related assets may become more illiquid during periods of interest rate volatility; (6) difficulties refinancing our securitizations and increases in the costs of our repurchase facility financings; (7) increase our financing costs as we seek to renew or replace borrowing facilities; and (8) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to increase. Conversely, decreases in interest rates, in general, may over time cause: (a) prepayments on our mortgage loan and MBS portfolio to increase, thereby accelerating the accretion of our purchase discounts; (b) the value of our mortgage loan and MBS portfolio to increase; (c) coupons on our ARM and hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to lower interest rates; (d) the interest expense associated with our borrowings to decrease; and (e) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to decrease.

Current wording

Changes in Market Interest Rates— The FOMC recently cut the federal funds rate by 50 basis points which has had a favorable impact on the cost of funds of our repurchase lines of credit. Increases in interest rates, in general, may over time cause: (1) the value of our mortgage loan and MBS portfolio to further decline; (2) coupons on our ARM and Hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to higher interest rates; (3) impact adversely our ability to securitize, re-securitize or sell our assets on attractive terms; (4) reduce the ability or desire of borrowers to refinance their loans; (5) mortgage related assets may become more illiquid during periods of interest rate volatility; (6) difficulties refinancing our securitizations and increases in the costs of our repurchase facility financings; (7) increase our financing costs as we seek to renew or replace borrowing facilities; and (8) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to increase. Conversely, decreases in interest rates, in general, may over time cause: (1) prepayments on our mortgage loan and MBS portfolio to increase, thereby accelerating the accretion of our purchase discounts; (2) the value of our mortgage loan and MBS portfolio to increase; (3) coupons on our ARM and Hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to lower interest rates; (4) the interest expense associated with our borrowings to decrease; and (5) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to decrease.

Previous wording

We adopted ASU 2016-13, Financial Instruments - Credit Losses, otherwise known as CECL using the prospective transition approach for PCD assets on January 1, 2020. At the time, $10.2 million of loan discount was reclassified to the allowance for expected credit losses with no net impact on the amortized cost basis of the portfolio.

Current wording

We adopted ASU 2016-13, Financial Instruments - Credit Losses, otherwise known as CECL using the prospective transition approach for PCD assets on January 1, 2020. Under CECL, we determine the allowance for credit losses by comparing the contractual cash flows for our mortgage loans held-for-investment, investments in securities, held-to-maturity (“HTM”) and investments in beneficial interests by comparing the contractual cash flows to the projected cash flows as determined by management.

Previous wording

Acquired loans may be aggregated and accounted for as a pool of loans if the loans have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. We may adjust our loan pools as the underlying risk factors change over time. We have aggregated our mortgage loan portfolio into loan pools based on similar risk factors. Excluded from the aggregate pools are loans that pay in full subsequent to the acquisition closing date but prior to pooling. Any gain or loss on these loans is recognized as interest income in the period the loan pays in full.

Current wording

Acquired loans may be aggregated and accounted for as a pool of loans if the loans have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. We may adjust our loan pools as the underlying risk factors change over time. We have aggregated our mortgage loan portfolio into loan pools based on similar risk factors. Excluded from the aggregate pools are loans that pay in full subsequent to the acquisition closing date but prior to pooling. Securities HTM and beneficial interests are assessed at the individual security level.

Previous wording

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, and other subjective assessments. In particular, we have identified six policies that, due to the judgment and estimates inherent in those policies, are critical to understanding our consolidated financial statements. These policies relate to (i) the allowance for credit losses, (ii) accounting for Interest income on our mortgage loan portfolio; (iii) accounting for Investments in securities available-for-sale ("AFS") and Investments in securities held-to-maturity ("HTM"); (iv) accounting for investments in beneficial interests; (v) accounting for Interest expense on our secured borrowings, repurchase facilities, 2024 Notes and 2027 Notes; and (vi) fair values. We believe that the judgment and estimates used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of our consolidated financial statements to these critical accounting policies, the use of other judgments or estimates could result in material differences in our results of operations or financial condition.

Current wording

Investments in Securities, Held-to-Maturity

Previous wording

Transfers of securities from AFS to HTM are non-cash transactions and are recorded at fair value. Unrealized gains or losses recorded to accumulated other comprehensive income for the transferred securities continue to be reported in accumulated other comprehensive income and are amortized into interest income on a level-yield basis over the remaining life of the securities. This amortization will offset the effect on interest income of the amortization of the discount resulting from the transfer recorded at fair value.

Current wording

Transfers of securities from AFS to HTM are non-cash transactions and are recorded at fair value and on the date of transfer. Any unrealized gains or losses continue to be reported in accumulated other comprehensive loss and amortized into interest income on a level-yield basis over the remaining life of the securities. This amortization offsets the effect on interest income of the amortization of the discount resulting from the transfer recorded at fair value.

Previous wording

Our Investments in Beneficial Interests are carried at amortized cost. Upon acquisition, the investments are recorded as three separate elements: (i) the amount of purchase discount which we expect to recover through eventual repayment of the investment, (ii) an allowance for future expected credit loss and (iii) the par value of the investment. The purchase discount which we expect to recover through eventual repayment of the investment gives rise to an accretable yield. We recognize this accretable yield as interest income on a prospective level yield basis over the life of the investment. Our recognition of interest income is based upon us having a reasonable expectation of the amount and timing of the cash flows expected to be collected. When the timing and amount of cash flows expected to be collected are reasonably estimable, we use these expected cash flows to apply the effective interest method of income recognition.

Current wording

Investments in beneficial interests are carried at amortized cost net of any allowance for credit losses. Upon acquisition, the investments are recorded as three separate elements: (i) the amount of purchase discount which we expect to recover through eventual repayment of the investment, (ii) an allowance for future expected credit loss and (iii) the par value of the investment. The purchase discount expected to be recovered through eventual repayment of the investment gives rise to an accretable yield. The accretable yield is recognized as interest income on a prospective level yield basis over the life of the investment based on the expected cash flows to be collected. Periodically, each beneficial interest is assessed for any credit loss that may be required by comparing the expected contractual cash flows to the projected cash flows. If the net present value of the contractual cash flows exceeds the net present value of the projected cash flows, an allowance for credit losses will be recorded. Conversely, if the net present value of the contractual cash flows is less than the net present value of projected cash flows, no allowance will be recorded and any existing allowance will be reversed.

Previous wording

•Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Current wording

•Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are less active or not active for identical or similar assets or liabilities; or other inputs that are observable, such as interest rates, yield curves, volatilities, prepayment rates, loss severities, credit risks and default rates or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Previous wording

The interest income detail for the years ended December 31, 2023, 2022 and 2021 is included in the table below ($ in thousands):

Current wording

The interest income detail and interest expense for the years ended December 31, 2024 and 2023, are presented in the table below ($ in thousands):

Previous wording

Table 2: Interest Income Detail

Current wording

Table 1: Interest Income Detail & Interest Expense

Previous wording

The average carrying balance of our mortgage loan portfolio decreased for the year ended December 31, 2023 versus the prior year of 2022 primarily due to lower acquisition combined with continued paydown of the loans. The average carrying balances of our debt securities and beneficial interests decreased for the year ended December 31, 2023 versus the prior year of 2022 as we did not invest in any new joint ventures with newly acquired loans. The average carrying balance of our debt outstanding decreased for the year ended December 31, 2023 versus the prior year of 2022 commensurate with the paydown of the related assets. The average carrying balances for our portfolio are included in the table below ($ in thousands):

Current wording

The average carrying balances for our portfolio and debt are included in the table below ($ in thousands):

Previous wording

Other expense for the year ended December 31, 2023 increased from the year ended 2022 primarily due to an increase in real estate operating expense as a result of higher impairment on our REO, taxes and regulatory expense and employee and service provider grants. Other expense for the year ended 2022 increased from 2021 primarily due to an increase in employee and service provider grants and travel, meals and entertainment, partially offset by lower non due diligence lien release. A breakdown of other expense is provided in the table below ($ in thousands):

Current wording

A breakdown of other expense is provided in the table below ($ in thousands):

Previous wording

During the year ended December 31, 2023, 384 mortgage loans, representing 7.2% of our ending UPB, were liquidated. Comparatively, during the year ended 2022, 667 mortgage loans, representing 12.5% of our ending UPB, were liquidated. Our loan portfolio activity for the years ended December 31, 2023 and 2022 are presented below ($ in thousands):

Current wording

Our loan portfolio activity for the years ended December 31, 2024 and 2023, is presented below ($ in thousands):

Previous wording

As of December 31, 2023 and 2022, our portfolios consisted of the following ($ in thousands):

Current wording

As of December 31, 2024 and 2023, our loan portfolios consisted of the following ($ in thousands):

Previous wording

(2)At December 31, 2023 and 2022, our loan portfolio consists of fixed rate (60% of UPB), ARM (6.4% of UPB) and Hybrid ARM (33.6% of UPB); and fixed rate (61.2% of UPB), ARM (6.8% of UPB) and Hybrid ARM (32.0% of UPB), respectively.

Current wording

(1)At December 31, 2024 and 2023, our loan portfolio consists of fixed rate (62.6% of UPB), ARM (7.3% of UPB) and Hybrid ARM (30.1% of UPB); and fixed rate (60.0% of UPB), ARM (6.4% of UPB) and Hybrid ARM (33.6% of UPB), respectively.

Previous wording

(3)Amounts that have been deferred in connection with a loan modification on which interest does not accrue. These amounts generally become payable at the time of maturity.

Current wording

(2)Represents amounts that have been deferred in connection with a loan modification on which interest does not accrue. These amounts generally become payable at the time of maturity.

Previous wording

(5)UPB as of December 31, 2023 and 2022, divided by market value of collateral and weighted by the UPB of the loan.

Current wording

(3)UPB as of December 31, 2024 and 2023, divided by market value of collateral and weighted by the UPB of the loan.

Previous wording

The following tables present certain characteristics about our mortgage loans by year of origination as of December 31, 2023 and 2022 ($ in thousands):

Current wording

The following tables present certain characteristics about our mortgage loans by year of origination as of December 31, 2024 and 2023, respectively ($ in thousands):

Previous wording

Our primary sources of cash have consisted of proceeds from our securities offerings, our secured borrowings, repurchase agreements, principal and interest payments on our loan portfolio, principal paydowns on securities, and sales of properties held-for-sale. Depending on market conditions, we expect that our primary financing sources will continue to include secured borrowings, repurchase agreements, and securities offerings in addition to transaction or asset specific funding arrangements and credit facilities (including term loans and revolving facilities).

Current wording

During the year ended December 31, 2024, our primary sources of cash have consisted of proceeds from the sale of residential mortgage loans and securities, as well as paydowns and interest income from our investment portfolio. Historically, our primary sources of cash have also included proceeds from our securities offerings, our secured borrowings, repurchase agreements, principal and interest payments on our loan portfolio, principal paydowns on securities, and sales of properties held-for-sale. Depending on market conditions, we expect that our primary financing sources will continue to include secured borrowings, repurchase agreements, and securities offerings in addition to transaction or asset specific funding arrangements and credit facilities (including term loans and revolving facilities).

Previous wording

We also may have difficulty accessing the capital markets on favorable terms or at all. Additionally, market events, including inflation and the related Federal Reserve bank actions, may still adversely impact our future operating cash flows due to the inability of some of our borrowers to make scheduled payments on time or at all, and through increased interest rates on secured borrowings and repurchase lines of credit. From time to time, we may invest with third parties and acquire interests in loans and other real estate assets through investments in joint ventures using special purpose entities that can result in investments AFS, investments held-to-maturity and investments in beneficial interests, which are included on our consolidated balance sheet.

Current wording

We also may have difficulty accessing the capital markets on favorable terms or at all. Additionally, market events, including inflation and the related Federal Reserve bank actions, may still adversely impact our future operating cash flows due to the inability of some of our borrowers to make scheduled payments on time or at all, and through increased interest rates on secured borrowings and repurchase lines of credit. From time to time, we may invest with third parties and acquire interests in loans and other real estate assets through investments in joint ventures using special purpose entities that can result in investments AFS, investments HTM and investments in beneficial interests, which are included on our consolidated balance sheets.

Previous wording

As of December 31, 2023 and 2022, substantially all of our invested capital was in RPLs, NPLs, SBC loans, debt securities, and beneficial interests. We also held approximately $52.8 million of cash and cash equivalents, an increase of $5.0 million from our balance of $47.8 million at December 31, 2022, which was a decrease of $36.6 million from our balance of $84.4 million at 2021. Our average daily cash balance during the year ended December 31, 2023 was $50.6 million, a decrease from our average daily cash balance of $60.9 million during the year ended 2022 and a decrease from our average daily cash balance of $99.1 million during the year ended 2021.

Current wording

As of December 31, 2024 and 2023, substantially all of our invested capital was in residential mortgage loans, CMBS, RMBS and beneficial interests. We also held approximately $64.3 million of cash and cash equivalents, an increase of $11.4 million from our balance of $52.8 million at December 31, 2023. Our average cash balance during the year was $68.5 million, an increase of $17.9 million from our average cash balance of $50.6 million during the year ended December 31, 2023.

Previous wording

Annual Operating, Investing and Financing Cash Flows

Current wording

Operating, Investing and Financing Cash Flows

Previous wording

Our operating cash outflows for the year ended December 31, 2023 were $46.5 million. Our operating cash inflows/(outflows) for the year ended December 31, 2022 and 2021 were $1.1 million and $(18.2) million, respectively. Our primary operating cash inflow is cash interest payments on our mortgage loan pools of $43.5 million, $46.6 million and $47.6 million for the years ended December 31, 2023, 2022 and 2021, respectively. Non-cash interest income accretion on our mortgage loans was $8.1 million, $13.8 million and $19.5 million for the years ended December 31, 2023, 2022 and 2021 respectively. Discount accretion on beneficial interests was $8.0 million, $10.8 million and $16.0 million during the years ended December 31, 2023, 2022 and 2021, respectively. Interest income and discount accretion on debt securities was $9.5 million, $10.6 million and $11.0 million during the years ended December 31, 2023, 2022 and 2021, respectively.

Current wording

Our operating cash inflows for the year ended December 31, 2024, were $0.3 million. Comparatively, our operating cash outflows for the year ended December 31, 2023, were $46.5 million. Our primary operating cash inflow is cash interest payments on our mortgage loans of $28.8 million and $43.5 million for the years ended December 31, 2024 and 2023, respectively. Non-cash interest income accretion on our mortgage loans was $3.0 million and $8.1 million for the years ended December 31, 2024 and 2023, respectively. Non-cash interest income on beneficial interests was $5.2 million and $8.0 million during the years ended December 31, 2024 and 2023, respectively. Interest income on debt securities was $10.5 million and $9.5 million during the years ended December 31, 2024 and 2023, respectively.

Previous wording

For the year ended December 31, 2023, our investing cash inflows of $172.8 million were driven by proceeds from principal payments on and payoffs of our mortgage loan portfolio of $85.7 million and principal and interest collections on our securities of $79.5 million and refinancing and sale of our debt securities and beneficial interests of $61.7 million, partially offset by the purchase of securities of $74.3 million, acquisitions of mortgage loans of $14.4 million and a $0.7 million investment in our Servicer. For the year ended December 31, 2022, our investing cash inflows of $223.1 million were driven by proceeds from principal payments on and payoffs of our mortgage loan portfolio of $147.3 million and principal and interest collections on our securities of $68.2 million and refinancing and sale of our debt securities and beneficial interests of $147.9 million, partially offset by the purchase of securities of $129.1 million, acquisitions of mortgage loans of $11.4 million and a $6.1 million purchase of additional shares in Gaea. For the year ended December 31, 2021, our investing cash outflows of $50.2 million were driven by acquisition of mortgage loans of $286.2 million, SBC loans of $20.7 million, and securities and beneficial interests of $341.8 million, partially offset by principal paydowns on and payoffs of mortgage loans of $218.8 million, proceeds from the sale of mortgage loans of $126.0 million, proceeds from the refinancing and sale of our debt securities and beneficial interests of $90.2 million and principal and interest collections from our debt securities and beneficial interests of $155.2 million.

Current wording

For the year ended December 31, 2024, our investing cash inflows of $297.3 million were driven by the net proceeds from the sales of our mortgage loans of $384.1 million, net proceeds on sales of our RMBS and CMBS of $65.0 million, proceeds from refinancing and sale of debt securities AFS and beneficial interests of $44.5 million, principal and interest collections on our debt securities HTM of $12.3 million, and principal payments and payoffs of our mortgage loan portfolio of $52.5 million, partially offset by purchases of CMBS of $255.3 million. For the year ended December 31, 2023, our investing cash inflows of $172.8 million were driven by payoffs of our mortgage loan portfolio of $85.7 million, proceeds from refinancing and sale of debt securities AFS and beneficial interests of $79.5 million, sales of RMBS of $61.7 million, and principal and interest collections on our securities HTM of $29.8 million, partially offset by the purchase of debt securities and beneficial interests of $74.3 million and acquisitions of mortgage loans of $14.4 million.

Previous wording

Our financing cash flows are driven primarily by funding used to acquire mortgage loan pools and debt securities. We fund our mortgage loan pools primarily through secured borrowings and repurchase agreements and we fund our debt securities primarily through repurchase agreements. For the year ended December 31, 2023, we had net financing cash outflows of $121.4 million primarily driven by repayments of $134.9 million on repurchase transactions, pay downs of $57.5 million on our secured borrowings and $20.6 million of dividends on our common and preferred stock, partially offset by additional borrowing through repurchase transactions of $64.8 million and common stock offerings of $28.2 million. For the year ended December 31, 2022, we had net financing cash outflows of $260.8 million primarily driven by repayments of $284.1 million on repurchase transactions and pay downs of existing debt obligations of $111.0 million on secured borrowings, the repurchase of our preferred stock and warrants in the amount of $125.0 million, and dividends on our common and preferred stock of $29.9 million, partially offset by additional borrowing through repurchase transactions of $183.9 million and the issuance of $108.9 million of senior unsecured notes, the proceeds of which were primarily used to repurchase our preferred stock and warrants. For the year ended December 31, 2021, we had net financing cash inflows of $45.7 million due to the borrowings through repurchase transactions of $560.6 million and secured borrowings of $391.0 million, partially offset by repayments of $435.7 million on repurchase transactions, pay downs of $393.0 million on secured borrowings and common and preferred dividends of $28.8 million.

Current wording

Our financing cash flows were driven primarily by funding used to acquire mortgage assets, as well as the debt service on our 2024 Notes and our notes payable, net (“2027 Notes”). We fund our mortgage loan pools primarily through secured borrowings and repurchase agreements and we fund our debt securities primarily through repurchase agreements. For the year ended December 31, 2024, we had net financing cash outflows of $286.1 million, primarily driven by the redemption of our 2024 Notes of $103.5 million, pay downs of our secured borrowings of $154.7 million and net repayments on our repurchase transactions of $19.2 million. For the year ended December 31, 2023, we had net financing cash outflows of $121.4 million primarily driven by net repayments of $70.1 million on repurchase transactions, and pay downs of $57.5 million on secured borrowings. For the years ended December 31, 2024 and 2023, we paid $12.3 million and $20.9 million, respectively, in combined dividends and distributions.

Previous wording

On February 28, 2020, our Board of Directors approved a stock repurchase of up to $25.0 million of our common shares. The amount and timing of any repurchases depends on a number of factors, including but not limited to the price and availability of the common shares, trading volume and general circumstances and market conditions. As of December 31, 2023, we held 1,035,785 shares of treasury stock consisting of 148,834 shares received through distributions of our shares previously held by our Manager, 361,912 shares received through our Servicer and 525,039 shares acquired through open market purchases. As of December 31, 2022, we held 1,031,609 shares of treasury stock consisting of 144,658 shares received through distributions of our shares previously held by our Manager, 361,912 shares received through our Servicer and 525,039 shares acquired through open market purchases.

Current wording

As of December 31, 2024, we held 1,664,365 shares of treasury stock consisting of 777,414 shares received through distributions of our shares of Common Stock previously held by our Former Manager, 361,912 shares received through our Former Servicer and 525,039 shares acquired through open market purchases. As of December 31, 2024, we held 1,035,785 shares of treasury stock consisting of 148,834 shares received through distributions of our shares of Common Stock previously held by our Former Manager, 361,912 shares received through our Servicer and 525,039 shares acquired through open market purchases.

Previous wording

During the year ended December 31, 2023, we sold 2,621,742 shares of common stock for proceeds, net of issuance costs of $17.2 million under our At the Market program, which we sell, through our agents, shares of common stock with an aggregate offering price of up to $100.0 million. Comparatively, during the year ended December 31, 2022, we sold 613,337 shares of common stock for proceeds, net of issuance costs of $4.8 million under our At the Market program. During the year ended December 31, 2021, we sold 24,951 shares of common stock for proceeds, net of issuance costs of $0.3 million under our At the Market program. In accordance with the terms of the agreements, we may offer and sell shares of our common stock at any time and from time to time through the sales agents. Sales of the shares, if any, will be made by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of the sale.

Current wording

During year ended December 31, 2024, we did not sell any shares of Common Stock under our At the Market program. Comparatively, during the year ended December 31, 2023, we sold 2,621,742 shares of Common Stock for proceeds, net of issuance costs of $17.2 million. Under our At the Market program, through our agents, we may sell shares of Common Stock with an aggregate offering price of up to $100.0 million. In accordance with the terms of the agreements, we may offer and sell shares of our Common Stock at any time and from time to time through the sales agents. Sales of the shares, if any, will be made by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of the sale. On September 6, 2024, the Company filed a registration statement with the SEC on Form S-3 to increase the maximum aggregate offering price to up to $400 million of Common Stock, preferred stock, debt securities, warrants and units available to be sold in public offerings or pursuant to the “at the market” program, as defined in Rule 415 under the Securities Act of 1933, as amended, or the Securities Act. The shelf registration statement was declared effective by the SEC on November 13, 2024.

Previous wording

We are not required by our investment guidelines to maintain any specific debt-to-equity ratio, and we believe that the appropriate leverage for the particular assets we hold depends on the credit quality and risk of those assets, as well as the general availability and terms of stable and reliable financing for those assets.

Current wording

We are not required by our investment guidelines to maintain any specific debt-to-equity ratio, and we believe that the appropriate leverage for the particular assets we hold depends on the credit quality and risk of those assets, as well as the general availability and terms of stable and reliable financing for those assets. We do, however, have debt covenants related to our various borrowing arrangements that have minimum liquidity and tangible net worth requirements, as well as maximum leverage ratio requirements. Generally, we are required to maintain minimum levels of Liquidity (as defined in the indenture governing the 2027 Notes) (in cash and cash equivalents) and tangible net worth of $30.0 million and $240.0 million, respectively. Similarly, our Consolidated Recourse Indebtedness to our Stockholders’ Equity ratio (as defined in the indenture governing the 2027 Notes) cannot exceed 4.0 to 1.0, excluding our secured borrowings.

Previous wording

Other than our investments in debt securities and beneficial interests issued by joint ventures, which are summarized below by securitization trust, and our equity method investments discussed elsewhere in this report, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities. As such, we are not materially exposed to any market, credit, liquidity or financing risk that could arise if we had engaged in such relationships.

Current wording

Other than our investments in RMBS and beneficial interests issued by joint ventures, our investment in Gaea Real Estate Corp and our investment in our Former Manager, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities. As such, we are not materially exposed to any market, credit, liquidity or financing risk that could arise if we had engaged in such relationships.

Previous wording

We form joint ventures with third party institutional accredited investors to purchase mortgage loans and other mortgage related assets. The debt securities and beneficial interests we carry on our consolidated balance sheets are issued by securitization trusts formed by these joint ventures, which are VIEs, that we have sponsored but which we do not consolidate since we have determined we are not the primary beneficiary.

Current wording

We form joint ventures with third party institutional accredited investors to purchase mortgage loans and other mortgage related assets. The RMBS and beneficial interests we carry on our consolidated balance sheets are primarily issued by securitization trusts formed by these joint ventures, which are VIEs, that we have sponsored but which we do not consolidate since we have determined we are not the primary beneficiary.

Previous wording

A summary of our investments in debt securities AFS and HTM issued by joint ventures is presented below ($ in thousands):

Current wording

A summary of our investments in RMBS retained from our joint ventures is presented below ($ in thousands):

Previous wording

(1)Ajax Mortgage Loan Trust 2021-E was formed on July 19, 2021 which was subsequent to completing Ajax Mortgage Loan Trust 2021-F and 2021-G. The trust made an election to be taxed as a REMIC however the residual class was placed with an unrelated third party.

Current wording

(1)Ajax Mortgage Loan Trust 2021-E made an election to be taxed as a REMIC however the residual class was placed with an unrelated third party.